Appraisals

• A full real estate appraisal involves a certified home appraiser visiting a property and determining its value after completing a thorough inspection and taking note of recent sales of similar homes. Some lenders try to reduce costs by using other types of appraisals. Electronic appraisals determine property values by finding sales prices of similarly sized homes. No actual home inspection occurs, and these appraisals cost your lender little or nothing. Drive-by appraisals involve an appraiser inspecting the exterior but not the interior of your home and these cost less that full appraisals. If you get a low electronic or drive-by appraisal, you can upgrade by ordering a full appraisal. However, if that value comes in even lower, you cannot choose to go back to the earlier appraisal numbers.
  
  

Appeals

• Appraisers sometimes make mistakes and you do have the right to appeal a low appraisal. Some lenders allow you to contest a value if you can provide the appraiser with several examples of similar properties that sold in the local area for prices in excess of the appraised value of your home. Some lenders may even allow you to pay for another appraisal conducted by a different appraiser. However, your home may have issues that have caused its value to drop below other houses in the area, so there are no guarantees that an appeal will result in the appraiser changing the value of your home.
  
  

Financing

• If you plan to buy a home for cash, then you could, in theory, still buy it for the agreed price even if the appraisal comes in low. If you finance a home purchase or refinance an existing lien, a low appraisal could cause the lender to deny your application. You can only finance a certain percentage of a property and loan-to-value limits range from 65 percent to 96.5 percent, depending on the loan type and property being financed. Therefore, with a purchase, you must ask the seller to lower the price so that the LTV falls within the acceptable range. On a refinance loan, you can proceed if you pay down your existing debt to get the LTV below your lender's maximum.
  
  

Considerations

• When you enter into a purchase agreement, you have to make a good-faith deposit and you stand to lose that if you do not complete the transaction. If the home appraisal comes in low and the seller refuses to drop the asking price, you only get your deposit back if the purchase agreement includes a clause providing you with a return of your deposit in the event of a low appraisal.
  
  As a home seller, your existing mortgage debt may prevent you from selling your home if an appraisal comes in lower than expected. You can pay down the balance, remain in the home or attempt to arrange a short sale. A short sale involves your lender allowing you to sell for less than you owe on your loan, but short sales have a damaging impact on your credit score.